The near-term outlook for the Cedi suggests it will maintain a moderate level of stability in its exchange rates with its major trading partners.
This stability is expected to result from a combination of factors, including recent coupon payments for new bonds, decreased import demands, and foreign exchange allocations to the oil sector, which will help counter the increased demand from corporate entities.
Since the beginning of the year, the Cedi has experienced an approximate 22 percent depreciation against the U.S. dollar. However, it has managed to remain relatively stable, fluctuating within a range of 11.01 to 11.45 against the dollar in recent weeks.
Databank Research has highlighted a recent surge in corporate demand for foreign exchange in the past two weeks, temporarily straining liquidity in the market.
Nevertheless, the Cedi closed stronger, partly attributed to the Federal Reserve’s announcement of a cautious policy rate hike, which helped alleviate market uncertainties.
“While we envisage an increase in corporate demand and a possible offshore FX repatriation from the coupon payments on the new bonds, we expect the GH¢ to gain a cushion from this week’s BDCs FX auction,” Databank’s analysts stated.
According to GCB Capital, an observant player in the market, the current rally of the US dollar and tightening liquidity conditions in the foreign exchange market pose a certain level of risk to the stability of the Cedi. Nonetheless, they hold an optimistic view concerning fiscal improvements and the recent coupon payment, which are expected to enhance market sentiment.
Approximately two weeks ago, the Treasury successfully fulfilled its commitment by settling the first coupon payment of around GH¢2.4 billion for new bonds under the Domestic Debt Exchange Programme. This development alleviated concerns about the government’s ability to meet its financial obligations. Notably, a significant portion of this coupon payment, amounting to GH¢5.37 million, was allocated to individual bondholders.
GCB Capital, however, cautioned that the Cedi remains susceptible to short-term shocks if liquidity conditions in the foreign exchange market continue to remain tight. Their research arm emphasized, “The Cedi could face precarious conditions in the coming week if FX liquidity remains constrained.”
Meanwhile, analysts at Constant Capital believe that the Cedi is benefiting from reduced imports and diminished demand pressure for foreign exchange. Currently, a substantial trade surplus has bolstered the nation’s current account, resulting in a surplus of US$849 million in the first half of the year, equivalent to 1.1 percent of Gross Domestic Product (GDP). This improvement includes a significant year-on-year decline of 13.5 percent in imports compared to the same period last year when there was a deficit of 1.5 percent of GDP.
Analysts at Constant Capital anticipate certain expected foreign exchange inflows by the year-end, including a US$600 million disbursement from the International Monetary Fund (IMF) and funds from the cocoa syndicated facility.
“The local currency seems to be benefitting from reduced imports and lower demand pressure for FX, ahead of certain expected FX inflows toward year-end – the US$600million IMF disbursement and COCOBOD debt syndication.”
AZA Finance, which forecast that the cedi will remain comparatively stable because of a consistent supply of forex to meet retail demands, agreed with this general opinion.